GBPUSD – In Possible Expanding Triangle – In Bearish Swing

DanV Updated   
FX_IDC:GBPUSD   British Pound / U.S. Dollar
Since early January 2019 the prospect of soft Brexit outcome has benefited sentiments towards GBP which has rallied from 1.2440 area to recent peak in 1.3350 area.

The meaningful vote is scheduled for 12th March which if it fails then further votes on No deal exit is on 13th March and negative outcome will be followed by vote for extension of exit date from 29th March to some future date.

Lack of coherent views on Brexit Deal across the House of Common and infighting on other aspects in Opposition Party is now likely to be the main focus along with EU’s stand on not re-negotiating Back-Stop all of which could add to negative sentiment for GBP for next several weeks.

Summary of some of the technical:
1. From the peak in April 2018 to Aug 2018 low GBPUSD declined in an abc zigzag around 1.2680 area.
2. From Aug 2019 low the price has formed 3 major swings all of 3 minor waves so far. Each extremity of these swings form slightly higher high and lower low than the previous one.
3. Such pattern formation could form in abcde expanding triangle (of 3-3-3-3-3 structure). If this is the case then the price appear to have just completed wave C and decline in wave D is anticipated towards 1.25 -1.23
4. We note momentum divergence with price from RSI and MACD on daily time frame. And MACD approaching zero line resistance on Weekly (see chart below in Update section.
5. There are some interesting time symmetries marking out the major high and lows of the price development so far. So based on this along with seasonal the guesstimate for the wave D around 1.25 – 1.23 could complete towards back end of March to mid April and Wave E around Late June/July 2019.
6. Overall this expanding triangle in this position would be bearish as a continuation of previous decline from April 2018 with GBPUSD eventually retesting the low of October 2016 or making a new lower low.

Conclusion: A bearish trades could be planned using your favourite method of entry, exit and trade management for shorting GBPUSD. If the price declines in a 3 swing as described above then:
1. Initial decline could be around 1.2750.
2. 2nd Price target is around 1.25 – 1.23 area.
3. Of course price will not move in straight line so clear stops loss should be used in conjunction with your entry method.

Warning: This is my interpretation of price action using TA approach that I consider helps me the most but could be completely wrong. Therefore as always, do your own analysis for your trade requirement and ignore my views.

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DXY Daily
GBPUSD Daily - Full chart
The lack of follow through on the anticipated decline might be confusing. However, The possibilities of the Expanded Triangle described in the published chart is still in play. Even if this is not the case a partial retracement towards 1.127 is very likley and it might offer further insight towards larger trend at play
If we see a No Deal Brexit as the outcome of the current impasse in the Parliament then GBP will be very vulnerable
GBPUSD - COT data as at close of business on last Tuesday shows that both the Large & Small Speculators have been Net Short on GBPUSD for sometime and have continues to be been squeezed. Large Specs short position dropped 40% and Small Spec by 80%. This would have continued since suggesting they might even have gone marginally Net long which we won't see till next Friday. However, GBPUSD is likely to commence a significant drop next week.
It seems that the wave (c) of the anticipated expanded triangle went on to make new high with top in 13th March. Since then the decline appears to be a leading diagonal which is nearly complete or will be this week. Seasonally GBP is strong during April. This might coincide with a retracement bounce before resuming down trend
The COT data has modest Net short by both the Large & Small Speculators and are close to neutral with accompanied drop in Open Interest
The anticipated expanded flat correction described where the wave “d” had downside 1.23 is now unlikely to develop. Hence the idea is now scratched

What appear to be the case is that Dec 5th Jan spike low was in fact completion of leading diagonal. Since then the choppy overlapping rally was wave “a” and partial retrace wave b low formed last week.

The current rally is wave c which could attain 1.36 or little higher whilst USD Dollar weakens.

That is when a major shorting opportunity might develop. Here is the chart